Illegal slot machines threaten Puerto Rico casinos

In this Aug. 10, 2012 photo, electronic slots machines line a room behind a bar in San Juan, Puerto Rico. Growing numbers of people appear to prefer their odds in gambling parlors set up everywhere from bars to bakeries on this U.S. territory and that's become not only a problem for the hotels running the bulk of legal casinos but for the government, which is already struggling with gaping budget shortfalls. As is, Puerto Rico will see two casinos close by the end of the year, with five other smaller casinos on the verge. (AP Photo/Ricardo Arduengo)
— AP

In this Aug. 10, 2012 photo, electronic slots machines line a room behind a bar in San Juan, Puerto Rico. Growing numbers of people appear to prefer their odds in gambling parlors set up everywhere from bars to bakeries on this U.S. territory and that's become not only a problem for the hotels running the bulk of legal casinos but for the government, which is already struggling with gaping budget shortfalls. As is, Puerto Rico will see two casinos close by the end of the year, with five other smaller casinos on the verge. (AP Photo/Ricardo Arduengo)
/ AP

In this Aug. 10, 2012 photo, people play an electronic slot machine in a room behind a bar in San Juan, Puerto Rico. Growing numbers of people appear to prefer their odds in gambling parlors set up everywhere from bars to bakeries on this U.S. territory and that's become not only a problem for the hotels running the bulk of legal casinos but for the government, which is already struggling with gaping budget shortfalls. As is, Puerto Rico will see two casinos close by the end of the year, with five other smaller casinos on the verge. (AP Photo/Ricardo Arduengo)— AP

In this Aug. 10, 2012 photo, people play an electronic slot machine in a room behind a bar in San Juan, Puerto Rico. Growing numbers of people appear to prefer their odds in gambling parlors set up everywhere from bars to bakeries on this U.S. territory and that's become not only a problem for the hotels running the bulk of legal casinos but for the government, which is already struggling with gaping budget shortfalls. As is, Puerto Rico will see two casinos close by the end of the year, with five other smaller casinos on the verge. (AP Photo/Ricardo Arduengo)
/ AP

SAN JUAN, Puerto Rico 
He is just one man gambling alone, his face lit by the pink glow of a slot machine in a dark neighborhood bar, but 69-year-old Pedro Rodriguez represents a threat to one of Puerto Rico's most important money makers - legal gambling.

As Rodriguez robotically punches buttons on a video slot machine, barely drinking the warm beer in his left hand, he explains why he places wages at a bar in a seedy section of the capital, and not at one of the glitzy hotel casinos that line the island's coast, where he once regularly contributed to the hundreds of millions of dollars in tax revenue the government badly needs each year.

"The probabilities are always in favor of the house," he said. "They don't like to pay."

Growing numbers of people appear to prefer their odds with illegal slot machines set up everywhere from bars to bakeries in this U.S. territory. That's become not only a problem for the hotels running the bulk of legal casinos but for the government, which is already struggling with gaping budget shortfalls. As is, Puerto Rico will see two casinos close by the end of the year, with five other smaller casinos on the verge.

Particularly hurt has been the government agency that manages tourism, which received $61 million from gambling taxes this past fiscal year, representing 72 percent of the agency's revenues. Another $71 million of the $156 million in annual gambling revenue received by the government went to the University of Puerto Rico, the island's largest public university.

Puerto Rico's Tourism Company, which is responsible for promoting the island, feeds off the revenues as it takes on a more prominent economic role with the decline of the island's manufacturing sector. While tourism makes up 6 percent of the island's gross domestic product, the government is increasingly turning to resorts and other high-end projects to generate more revenue.

Overall, the government estimates it's losing about $200 million a year because of illegal machines, but it has done little to fight the problem, said Ismael Vega, president of Puerto Rico's Hotel and Tourism Association.

"To protect casinos is to protect the entire tourism industry of Puerto Rico," he said, expressing frustration with government officials and others who could fight the problem. "That's what they fail to understand."

The plummeting revenue couldn't come at a worse time for Puerto Rico, as it struggles with budget deficits that have recently totaled more than 10 percent of its annual budget. A lack of resources has particularly hit law enforcement struggling to lower a record homicide rate.

Recovering legal gambling revenue would help put a big dent in those problems. Puerto Rico's 21 hotel casinos offer some 7,000 slot machines, but Vega said they're no competition for the estimated 25,000 illegal slot machines scattered across the island.

Some establishments openly advertise the machines with neon signs while others hide them in back rooms or require people to ring a bell for access. Most recently, people have set up illegal betting parlors dedicated just to the machines, renting commercial spaces in urban areas where they offer dozens of machines and sell food and drinks like a regular casino, said Tourism Secretary Luis Rivera Marin.